European defense and aerospace giant eads is planning a rapid expansion into the U.S. market. It aims to increase U.S. sales by 500 percent, from $2 billion annually to $10 billion within the next decade. This plan will hurt U.S. firms such as Boeing and increase the impact this foreign firm has on U.S. defense.

The impetus for the expansion comes from the strong euro and weak dollar. These conditions make it cheaper to buy equipment from U.S.-based firms, forcing eads to cut prices or lose market share. A strong euro has also led to high manufacturing costs. “The present condition of the euro is a threat to Europe’s high-tech industry, especially ours,” saideads head Louis Gallois. “The U.S. dollar has lost 40 percent against the euro in five years. We have to reduce the sensitivity of eads to the exchange rate.”

The strong euro, however, offers eads the perfect opportunity to invest in America. “The U.S. dollar is very low, so this is the right time to buy,” said Gallois. “We’re late if compared with bae Systems, but this is now our special focus. Over 50 percent of the world’s defense market is in the U.S.” Gallois announced eads’s intention to buy a medium-size defense company in the United States this year.

2007 has been a good year for Airbus, eads’s commercial airline unit, “clearly our best performance in history,” according to Gallois. Airbus made about 1,300 sales at “better-than-expected prices,” he said. 2007 figures to be announced next week are expected to rival Boeing sales.

Despite Airbus’s “best performance in history,” eads is still in financial trouble. It has enough revenue to keep going and plenty of cash for takeovers, but it is having difficulty making a profit. In the first nine months of 2007, it lost €343 million.

The future doesn’t look too rosy either. According to the Financial Times:

[Gallois] warned that the credit squeeze in the U.S. could ripple into the wider economy there. This and the effects of … high oil prices could lead U.S. airlines, which have been expected to come into the aircraft market, to shy away from buying, Mr. Gallois said.

Gallois also said it would be a “challenge” to meet eads’s long-term profit goals at anywhere near the current exchange rates.

eads wants to reduce its dependence on commercial sales, which are seen as more vulnerable than defense contracts. “Commercial aircraft make up 47 percent of Boeing’s activities, but 65 percent of eads’s. It is a risk for us. Our horizon is to go to 50:50,” said Gallois.

The European company plans to do this specifically by increasing its defense sales to the U.S. It made its first major breakthrough less than two years ago when the United States Army announced it would spend $3 billion to buy up to 352 uh-145 helicopters from Eurocopter, a subsidiary of eads.

By investing in the U.S., eads reduces its vulnerability to a declining dollar, and can expand by taking advantage of the current economic conditions. It also does a third thing. It further opens up the U.S. defense market to European competition.

As the Trumpetwrote in May 2004:

If U.S. military contracts were to go Airbus’s way, an already weakened American economy would be harmed by the loss of multi-billion dollar contracts to a foreign company. One of the main reasons Boeing became such a rich, powerful company in the first place is the U.S. resolve to produce military products domestically. What’s more, to rely on foreign sources for military goods is inherently dangerous.

In an article in August 2006, we wrote:

During the War of Independence, America learned the painful lesson of dependence on foreign nations: Because of a lack of manufacturing, the U.S. had to rely on France and the Netherlands to supply everything from guns and gunpowder to blankets and clothing, and Britain routinely cut America’s supply lines. Seeing this weakness, America’s Founders implemented a national strategy promoting industrial and military self-sufficiency in order to enhance the nation’s security.It seems America has forgotten that lesson. America’s leaders have allowed the nation’s manufacturing base to erode. Many manufacturers—including some that are strategically important for the military—have gone bankrupt or been bought out; others have moved overseas where manufacturing costs are cheaper.

For more information on how further eads sales to the U.S. could endanger the nation, read our article “Military Self-Sufficiency Undermined by Outsourcing.”